Please look at the H.4.1 report which showed Discount Window borrowings averaged $7 million last week, a $427 million decrease since the 11/21/07 report. This change and the ending balance of $8 million on 11/28/07 should catch your attention.   The ending balance a year ago was $4 million - is that so different than the $8 million now?  Is the similar borrowing indicative of the trouble that investors and the media and the Fed were warning you about and protecting you from a year ago?  Oh yeah, that’s right - we didn’t have a problem according to them a year ago.  Aren’t the Chairman and Vice Chairman of the Stock Market Federal Reserve telling all of us that the credit markets are in trouble? I’ve heard more than a few economists and media hypesters say how the Fed needs to lower the Discount Rate to help out our banks. Haven’t we been here before? This is the same crap that they said in August and September and Halloween and they got what they asked for. Remember - the Fed does what the market and the media tell them to do. And when some of their members signaled they were on hold after the last meeting, the media and market said “We don’t believe them. They’ll come around.” And voila - the Fed is now singing the stock market’s tune.

Other than the ceremonial borrowing, how much credit has found its way out of the Discount Window? NOT MUCH! So what do we know? According to Bernanke and the hypesters and yes, even me, the banks are in trouble. The main difference is that I have been consistent with that message and they have flip-flopped every few weeks. They are the ones that keep telling you “the worst is behind us” followed by there is a lot of pain out there and more to come. They are the ones saying the Fed needs to cut followed by the Fed is done (right Kudlow?). They are the ones saying that the writedowns were all put out with the kitchen sink followed by saying there probably will be more writedowns. They are the ones saying two weeks ago that the CP market is stabilizing (right Bernanke?) and getting healthier followed by saying how the credit / CP markets are deteriorating.

What a freaking joke! The market keeps buying into those stories and keeps listening to the same people who are either lying or grossly incompetent. I suggest that if you are a short term trader, you might want to listen to them and not listen to me. They move the market, I obviously do not. The truth appears to be less important than an alternating view of the truth as they see it at that particular moment. So since at this moment, I am in agreement with the concept that the banks are in trouble, let’s look at the Discount Rate discussion. Ipso facto - if the banks are in trouble now and we’ve had significant cuts to the Discount Rate over the past 3 months, those cuts have not worked. If the banks are in trouble and each time the rate is lowered, they have not borrowed significantly from the Discount Window, why do you think this cut will do the trick?

I know how the Fed’s timing of prior Discount Rate cuts screwed the shorts and how they have propped up the stock market. I have yet to see how any of the prior cuts have resulted in improvements to the credit market. Where are we headed with this? Let’s take their logic to the extreme. So if a lot of cuts haven’t helped but the next incremental cut might, that leads you down a succession of cuts to zero. What I do know is that if the Fed would just cut the Discount Rate to zero and allow for all the crappy collateral to be offered up, the system would be cleansed. Of course, the economic implications of that would be devastating and it would never happen. I just used this extreme example to show how dangerous it is to continue on our current course of believing that Fed rate cuts will solve the problems we have.